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Adidas Reebok Revival Depends on CrossFit for New Sales: Retail

June 18, 2012

Adidas Reebok Revival Depends on CrossFit for New Sales

As CrossFit Inc. expands in Europe and the U.S., Adidas expects sponsoring the circuit exercise routine to restore some intensity to Reebok, helping it reclaim its place in the fitness pantheon. Photographer: Guenter Schiffmann/Bloomberg

At a CrossFit gym in Nuremberg, Germany, plastered with the logos of shoemaker Reebok, customers sweat through a workout dubbed “A Fight Gone Bad.” The same could be said for Adidas AG (ADS)’s effort to turn around the flailing Reebok, which it bought in 2006.

“It’s a competitive atmosphere, but everyone knows the ultimate person we’re competing against is ourselves,” said Ginger Sladky, 40, who set up the gym with her husband in March with advertising support from Reebok, which sponsors CrossFit worldwide. The workouts require people “to keep up the intensity, each and every time.”

As CrossFit Inc. expands in Europe and the U.S., Adidas expects sponsoring the circuit exercise routine to restore some intensity to Reebok, helping it reclaim its place in the fitness pantheon.

The brand that helped make step aerobics a staple in gyms around the world two decades ago has posted sales declines for three of the five full years since Adidas purchased it for $3.7 billion. Adidas, which won’t say how much it’s paying for the arrangement, has splashed the Reebok name across CrossFit equipment, gyms and trainers’ clothing.

After a brief bounce in sales due to the popularity of its ``toning’’ shoes-- which the company claimed help strengthen leg and butt muscles-- Reebok has forecast another decline in revenue this year.

Lost NFL Contract

Adidas is wrestling with a fraud investigation at its Reebok unit in India and in the U.S. in April it lost a contract to outfit the National Football League, which may cost the world’s second-biggest maker of sporting goods more than 200 million euros in lost revenue a year. Reebok is facing a slowdown in the market for toning shoes and last September agreed to pay $25 million in a settlement that will be used for consumer refunds after the U.S. Federal Trade Commission accused the company of deceptive health claims about its EasyTone and RunTone footwear.

Reebok said at the time that it stood behind its EasyTone technology and that the company didn’t agree with the FTC’s allegations, despite the settlement.

Given the bad news, analysts say Reebok won’t meet its long-term sales targets. The unit will post revenue of 2.6 billion euros in 2015, the median estimate of three surveyed shows, short of the 3 billion euros Reebok has pledged. Adidas says it stands by the goal, despite the lost NFL license.

Fit in 20 Minutes

Reebok aims to help close the gap via its two-year-old deal with CrossFit. Reebok is “very satisfied with the development,” after an increase in registrations last year at Reebok CrossFit centers last year, said Adidas spokeswoman Katja Schreiber.

“We want to change the way the world perceives and experiences fitness and make it possible for people to improve their physical, mental and social fitness,” Chris Froio, Reebok’s global head of fitness, said in an e-mailed statement.

CrossFit promises a complete fitness routine in less than 20 minutes. Its popularity has swelled in the U.S. in recent years as people get hooked on both its speed and being pitted against others. Participants compare their scores on a whiteboard and use Facebook and Twitter to challenge each other. At the annual CrossFit Games competition, men and women compete to be crowned the “Fittest on Earth.”

“It’s an excellent fit for Reebok, which has been in the woods for a while as it’s struggled to decide what it wants to be,” said John Birnsteel, head of strategy at FutureBrand, a branding consultancy. ``It was appearing to box itself in as a very female-oriented fitness brand.’’

Sumo Deadlift

In Nuremberg, CrossFit enthusiasts power their way through a circuit of push ups, ``sumo deadlift highpulls’’ and ``glute- ham developer hip extensions’’ with only one-minute breaks before repeating a workout. There are more than 3,000 CrossFit ``boxes’’ -- what the company calls its gyms -- in dozens of countries, and about 300,000 people around the world participate in the routine, according to Adidas.

The partnership with CrossFit will help boost sales by making consumers think of Reebok as a brand with deep roots in fitness, said Mark Josefson, an analyst at Silvia Quandt Research GmbH in Frankfurt. It ``will give credence to Reebok,’’ he said.

Reebok will open one more box in the U.S. this summer for a total of four and plans to collaborate with about 10 boxes in Germany by the end of this year. Reebok currently sponsors about 70 boxes in 30 countries.

`Sport of Fitness'

“CrossFit is very addictive,” said Neil Pugsley, 31, from Port Talbot, Wales, who dedicates an hour a day, six days a week, to his CrossFit training. “I have seen the best gains in my strength and fitness in the past year since I started training.”

The CrossFit partnership won’t do much to offset the lost NFL contract anytime soon, said Manfred Abraham, head of consulting at London-based Interbrand. The NFL deal went to rival Nike Inc. (NKE:US) after Reebok had held it for more than a decade.

“I would see this more as a long-term strategy for growth rather than a switch-and-swap revenue tactic,” Abraham said.

Reebok, which in January introduced the motto “the sport of fitness has arrived,” has already struggled. The brand’s sales dropped 5.5 percent in the first quarter compared with a 17 percent sales increase for the Adidas brand. Last year, Reebok’s revenue rose 2.6 percent to 1.96 billion euros.

“Reebok was probably not a good investment and will never be,” said Sebastian Frericks, an analyst at Bankhaus Metzler in Frankfurt. He estimates its value may have dropped by as much as half since the purchase. “Profitability at the brand is still an issue, and Adidas can’t be happy with the margin development.”

-- With assistance from Andrew Roberts in Paris. Editors: Thomas Mulier, Celeste Perri

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net

To contact the editor responsible for this story: Celeste Perri in Amsterdam at cperri@bloomberg.net


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